Cellphone companies penalised for following ‘user pays’ script

These companies tick the boxes on investment and jobs

The user pays. That is the principle the Treasury embraced and hoped to sell to citizens as it became clear that infrastructure development would have to be funded from somewhere other than the national coffers. It was the argument state-owned road agency Sanral used for its toll roads in Gauteng and a justification for Eskom’s steep tariff-increase plans. Neither of which succeeded. Sanral isn’t enforcing payment of toll fees, and Eskom, while still securing increases well above inflation, has not received those it requested. But when it comes to the private sector, it seems some companies are penalised for applying the principle that some in government wish they could apply.

Last week’s release of the Competition Commission’s preliminary report into data prices said cell companies were profiteering. The Collins definition of profiteering is “making large profits by charging high prices for goods that are hard to get”. Other definitions imply illegal activity.

Companies make profits so that they have, in theory, funds to expand and hopefully employ more people and to have a buffer for unexpected shocks such as the loss of a big contract or unexpected price hikes in an essential raw material, or even protracted industrial action.

Yes, they also award shareholders and pay executives princely sums.

Eskom could be profitable (or at least sustainable) if the user-pays principle had been applied through tariff hikes throughout the past two decades. National energy regulator Nersa has consistently awarded tariff increases below what Eskom requested. And we cheered Nersa along. But it is coming back to bite us. Steve Lennon, a former Eskom group executive for sustainability, told Business Times in March: “I do believe with the benefit of hindsight that the tariff strategy which was proposed in the early 2000s by Eskom at the time would have made a difference. We proposed small and consistent above-inflation increases over an extended period until tariffs reached cost reflectivity. At the same time, funds could be accumulated to finance new capacity.”

Ah, the benefit of hindsight. Now the utility is struggling to stay afloat and taxpayers will end up paying (more) anyway. Of course, it hasn’t helped that state capture and massive cost overruns at new power stations have also played a part in Eskom’s financial woes.

While data is a commodity like electricity, it’s provided by companies, not the state, and, for companies, there is no-one to bail them out if they don’t manage their businesses properly. They also have to fund their own expansion, and with that investment they expect a return.

You can’t have it both ways. The government wants investment and jobs. Cellphone companies tick both boxes. Vodacom employs 7,554 people and MTN has 18,835 staff members — though not all in SA. They and their employees are also taxpayers. MTN has invested R77bn over the past decade, and Vodacom has invested R26.7bn in the past three years. The companies plan to invest R50bn each in the next five years. Timely reinvestment is often where state-owned enterprises fall short.

But the two companies are also in a dominant position, and that needs to be kept in check. Competition Commission commissioner Tembinkosi Bonakele said: “When companies like Cell C and Telkom dropped their prices, there was no impact on the market leaders — Vodacom and MTN. The lack of fair prices shows there is simply no competition in this market.”

The Competition Commission wants mobile operators to commit to significantly cutting data prices. Cellphone companies have until mid-June to respond to the commission’s preliminary report. By then, the election clamour will be gone, and the commission’s hardline attitude will likely become more conciliatory. After all, when you begin negotiating, your opening salvo needs to be hard-hitting.